Retirement Tax Planning Guide — 2026
RMD Strategy and Roth Conversion Planning for Minnesota Retirees
The window between retirement and age 73 may be the most consequential tax planning opportunity most Minnesota professionals never fully use. Here is how to use it strategically.
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The Core Strategic Question
Why the Pre-RMD Window Is Your Most Valuable Tax Planning Opportunity
For most Minnesota professionals, required minimum distributions (RMDs) begin at age 73 under the SECURE 2.0 Act. Those distributions are taxed as ordinary income at both the federal level and by Minnesota, which taxes traditional IRA and 401(k) withdrawals at rates up to 9.85% as of 2026. The core question every executive and professional nearing retirement should be asking is this: what do you do with the years between retirement and age 73?
For many, those years represent a temporary income gap. Earned income has stopped or significantly declined. Social Security may not have started yet. RMDs have not begun. That combination creates a narrow window where your taxable income may be lower than it will be at any other point in your retirement — and it may be the optimal time to convert traditional IRA or 401(k) assets to a Roth IRA at a lower effective tax rate.
At New Horizons Boutique Financial Services, Lars Engman (MBA) and Alec Engman (B.S. Economics, University of Minnesota) work with professionals in the Lake Elmo area and across the Twin Cities metro to structure these conversion decisions as part of a comprehensive, strategy-first retirement plan that supports long-term financial independence. Every situation is different, and the analysis below is educational — not a personalized recommendation.
What This Guide Covers
- 1 2026 RMD rules and the IRS Uniform Lifetime Table
- 2 How Minnesota taxes traditional IRA distributions and Roth conversions
- 3 Roth conversion tax bracket management strategies
- 4 Medicare IRMAA thresholds and how conversion income affects them
- 5 A year-by-year conversion illustration from ages 62 to 73
- 6 How to sequence distributions to reduce lifetime tax burden
Key Numbers for 2026
RMD and Roth Conversion: The Numbers That Drive the Strategy
Sources: IRS (2026), Minnesota Department of Revenue (2026), Centers for Medicare and Medicaid Services (2026). All figures as of 2026 and subject to change.
73
RMD Starting Age
Set by SECURE 2.0 Act; applies to most traditional IRAs and 401(k)s as of 2026
9.85%
Minnesota Top Income Tax Rate
Applied to traditional IRA and 401(k) distributions; no special retirement exclusion for these accounts
$106K
2026 IRMAA Tier 1 Threshold
Individual MAGI above approximately $106,000 triggers Medicare Part B and D surcharges (CMS, 2026)
25%
Penalty on Missed RMDs
Reduced from 50% by SECURE 2.0; further reduced to 10% if corrected within two years
2026 Rules Explained
How Required Minimum Distributions Work in 2026
Under the SECURE 2.0 Act, the required beginning date for RMDs is April 1 of the year following the year in which you turn 73. For those turning 73 in 2026, the first RMD must be taken by April 1, 2027. Choosing to delay that first distribution means you will be required to take two distributions in 2027 — which may push you into a higher bracket in that year. For most retirees, taking the first RMD in the calendar year they turn 73 avoids the double-distribution problem.
RMD amounts are calculated by dividing the prior December 31 account balance by a life expectancy factor from the IRS Uniform Lifetime Table. The factor decreases each year, meaning the percentage of the account you are required to distribute increases with age. A retiree at 73 uses a factor of approximately 26.5, requiring a distribution of roughly 3.77% of their account balance. By age 80, that factor drops to approximately 20.2, requiring roughly 4.95%.
Minnesota taxes these distributions as ordinary income with no special exclusion for traditional IRA or 401(k) withdrawals. The state's income tax brackets for 2026 range from 5.35% on the first tier of income to 9.85% on income over approximately $220,650 for married filing jointly filers. For executives who retire with significant pre-tax account balances, large RMDs can consistently land in the 7.85% or 9.85% Minnesota brackets — on top of the 22% or 24% federal rate.
IRS Uniform Lifetime Table — Key Factors (2026)
Source: IRS Publication 590-B. Divide prior year-end balance by the factor to determine annual RMD.
| Age | Distribution Period | Approx. % of Balance |
|---|---|---|
| 73 | 26.5 | 3.77% |
| 75 | 24.6 | 4.07% |
| 78 | 22.0 | 4.55% |
| 80 | 20.2 | 4.95% |
| 85 | 16.0 | 6.25% |
| 90 | 12.2 | 8.20% |
Percentages are approximate illustrations only. Actual RMD amounts depend on individual account balances, account type, and beneficiary designations. Consult a tax professional for your specific calculation.
Minnesota Tax Context
How Minnesota Taxes Traditional IRA Distributions and Roth Conversions
Understanding Minnesota's tax treatment of retirement account distributions is the foundation of any conversion strategy built for this state. The rules differ in important ways from what most national guidance describes.
Traditional IRA and 401(k) Distributions
Minnesota taxes traditional IRA and 401(k) distributions as ordinary income in full. Unlike some states, Minnesota provides no broad exclusion for private retirement account withdrawals. For 2026, the state's top rate of 9.85% applies to income above approximately $220,650 (married filing jointly). Higher-income retirees can expect to pay both the federal rate and 7.85% or 9.85% in state tax on most RMD income.
Roth Conversions in Minnesota
A Roth conversion is a taxable event in Minnesota in the year it is executed. The converted amount is added to ordinary income and taxed at the applicable Minnesota rate, the same as a traditional distribution. However, future qualified Roth IRA distributions — including growth — are tax-free at both federal and Minnesota state levels. The conversion shifts the tax obligation from the future (when RMDs and potentially higher rates apply) to the present.
Minnesota Retirement Income Subtraction
Minnesota does offer a retirement income subtraction for qualifying individuals, but it applies primarily to Social Security income and certain public pension income (PERA, TRA) — not to traditional IRA or 401(k) distributions. The subtraction phases out as income rises, and executives with significant IRA balances typically exceed the income thresholds. This makes proactive Roth conversion planning especially relevant for higher-income Minnesota retirees.
Key Minnesota Tax Insight for 2026
Because Minnesota taxes Roth conversions and traditional distributions at the same ordinary income rates, the timing advantage of converting early is primarily about controlling when income is recognized and at what federal bracket — not about avoiding the Minnesota rate. The state-level rate will apply in either case. The win is in managing the federal bracket, coordinating with IRMAA thresholds, and reducing the taxable account balance that will eventually drive mandatory RMDs at potentially higher combined rates.
Tax figures cited are based on Minnesota Department of Revenue guidance and IRS rules as of 2026. Tax laws may change. This content is educational and does not constitute tax or legal advice. Consult a qualified tax professional for guidance on your specific situation.
Illustrated Strategy
Year-by-Year Roth Conversion Illustration: Ages 62 to 73
The following is a hypothetical, simplified illustration designed to show the structure of a pre-RMD conversion strategy. It is not a projection or prediction of actual results, and individual outcomes will vary significantly based on account balances, income sources, tax bracket thresholds, and other personal circumstances. This illustration is for educational purposes only.
| Age | Phase | Key Action | Strategic Objective |
|---|---|---|---|
| 62-63 | Early retirement; no RMDs, no Social Security yet | Begin modest conversions; live on savings or taxable accounts | Fill the 12% or 22% federal bracket without exceeding IRMAA Tier 1 threshold |
| 64-65 | Approaching Medicare eligibility at 65 | Model IRMAA impact; continue conversions up to IRMAA Tier 1 limit (~$106K individual MAGI) | Avoid Medicare surcharges while maximizing conversion volume |
| 65-67 | On Medicare; Social Security not yet claimed | Convert up to the top of the 22% or 24% federal bracket; model Minnesota impact | Reduce pre-tax balance while Social Security is not yet adding to taxable income |
| 67-70 | Social Security delayed to maximize benefit | Adjust conversion amounts based on projected SS income; recalculate bracket headroom annually | Maintain conversion momentum without triggering higher IRMAA tiers once SS starts |
| 70-72 | Social Security in payment; final pre-RMD years | Use remaining conversion capacity; evaluate whether further conversion exceeds cost benefit | Minimize the pre-tax balance subject to mandatory distributions beginning at 73 |
| 73+ | RMDs begin | Take annual RMDs; may convert additional amounts in favorable market conditions | Lower pre-tax balance means smaller required distributions and reduced tax drag |
This table is a simplified illustration for educational purposes. Bracket thresholds, IRMAA limits, and tax rates are based on 2026 figures and are subject to change. Individual circumstances differ materially. Work with a qualified advisor to model your specific situation before executing any conversion strategy.
IRMAA and Medicare Planning
The Medicare IRMAA Threshold: A Critical Conversion Guardrail
Medicare's Income-Related Monthly Adjustment Amount (IRMAA) is one of the most commonly overlooked factors in Roth conversion planning. IRMAA uses your modified adjusted gross income (MAGI) from two years prior to determine Medicare Part B and Part D premium surcharges. This two-year lookback means a Roth conversion executed in 2026 could affect your Medicare premiums in 2028.
For 2026, the base Medicare Part B premium is approximately $185 per month per person. Crossing the first IRMAA tier — at approximately $106,000 of individual MAGI or $212,000 for married filing jointly — adds a surcharge of approximately $74 per month per person. Higher tiers increase that surcharge substantially. At higher income levels, IRMAA surcharges can add thousands of dollars annually to Medicare costs per person.
This does not mean you should avoid conversions to stay below IRMAA thresholds in all cases. In many scenarios, paying a modest IRMAA surcharge in exchange for a substantial long-term tax reduction on future RMDs may still be the right approach. The goal is to know the threshold and make the decision deliberately, not to accidentally cross it without realizing the impact.
2026 IRMAA Threshold Reference
Source: Centers for Medicare and Medicaid Services, 2026. Figures are approximate and subject to annual adjustment.
| Individual MAGI | MFJ MAGI | Part B Surcharge/mo. |
|---|---|---|
| Up to ~$106K | Up to ~$212K | $0 (base premium) |
| ~$106K-$133K | ~$212K-$266K | +~$74/person |
| ~$133K-$167K | ~$266K-$334K | +~$187/person |
| Above ~$500K | Above ~$750K | +~$443/person |
IRMAA is calculated on MAGI from the prior two tax years. A 2026 conversion affects 2028 Medicare premiums. Surcharge amounts shown are for Part B only; Part D surcharges are separate.
Distribution Sequencing
How to Sequence Distributions to Reduce Lifetime Tax Burden
Beyond the conversion decision itself, the order in which you draw from different account types in retirement — taxable brokerage accounts, traditional pre-tax accounts, and Roth accounts — can meaningfully affect your total lifetime tax exposure. This is called distribution sequencing, and it is closely intertwined with RMD planning.
Early Retirement: Draw from Taxable Accounts First
In the years immediately following retirement, drawing from taxable brokerage accounts (where gains may be taxed at preferential long-term capital gains rates) while allowing pre-tax IRA balances to continue compounding can preserve more of the low-income years for Roth conversions. The goal is to leave the pre-tax account balances as the source you are systematically converting — not the primary source of living expenses.
Mid-Retirement: Coordinate Conversions with Social Security Timing
Delaying Social Security to age 70 maximizes the lifetime benefit but also pushes significant income into later years. The years before Social Security starts are often the best window for larger conversions. Once Social Security begins, that income occupies bracket space — leaving less room for conversion income at the same marginal rate. Modeling the interaction between Social Security start date and annual conversion amounts is an important part of this planning.
Consider Qualified Charitable Distributions to Satisfy RMDs
Once RMDs begin at 73, retirees who are charitably inclined may be able to use qualified charitable distributions (QCDs) to satisfy part or all of their annual RMD. A QCD transfers up to $105,000 per year (as of 2026, indexed for inflation) directly from an IRA to a qualifying charity. The amount counts toward the RMD but is excluded from taxable income at both the federal and Minnesota state level — potentially one of the most tax-efficient distribution strategies available to charitable retirees.
Minnesota Estate Tax: Another Reason Roth Conversions Matter
Minnesota imposes its own estate tax with an exemption of $3 million — significantly lower than the 2026 federal exemption of approximately $13.6 million. For executives and business owners who have accumulated substantial wealth, Roth accounts provide an additional estate planning benefit: Roth IRAs pass income-tax-free to heirs (subject to the 10-year distribution rule for most non-spouse beneficiaries under the SECURE Act). Pre-tax IRA balances transferred to heirs generate taxable RMDs. Reducing the pre-tax balance through conversions may reduce the combined income and estate tax exposure for beneficiaries. For more on how Minnesota taxes retirement income, see our detailed guide on Minnesota state taxes on retirement income, or explore our full overview of retirement income distribution planning in Minnesota.
Our Approach
How New Horizons Boutique Financial Services Approaches This Planning
RMD strategy and Roth conversion planning are not standalone decisions. They intersect with Social Security timing, Medicare premium management, estate planning, and the broader question of how much income you actually need in retirement and when. At New Horizons Boutique Financial Services, Lars Engman (MBA) and Alec Engman (B.S. Economics, University of Minnesota) work with executives and professionals nearing retirement to approach these questions within a full financial strategy — not as individual product recommendations.
Because our firm intentionally limits the number of client relationships we take on, every client receives direct attention from their advisor. Roth conversion analysis is built into the retirement planning process from the start — not added as an afterthought after accounts are already structured. The goal is to help you understand what each decision costs and what it may gain, so you can make it with confidence.
We serve professionals and executives across the Twin Cities metro — including Lake Elmo, Stillwater, Woodbury, and Arden Hills. Our strategy-first approach means we analyze your full picture — assets, income, taxes, cash flow, and goals — before making any recommendations. Learn more about our retirement planning approach for Minnesota professionals or explore our tax planning strategies for high-income individuals. For a practical action plan before December 31 deadlines, see our year-end tax planning checklist for high earners.
What a Roth Conversion Review Typically Includes
- ✓ Review of all retirement account balances and projected growth
- ✓ Federal and Minnesota tax bracket projection for current and future years
- ✓ IRMAA modeling to quantify Medicare premium impact of conversion income
- ✓ Social Security start date analysis and interaction with conversion windows
- ✓ Estimated RMD projections and distribution planning at ages 73, 75, 80, and beyond under different scenarios
- ✓ Coordination with estate plan and beneficiary considerations
The review scope described above is illustrative. Actual planning engagements vary based on individual circumstances and client needs. Results depend on individual situations and are not guaranteed.
Frequently Asked Questions
Common Questions About RMDs and Roth Conversions in Minnesota
What is the best age to convert to a Roth IRA in Minnesota?
There is no single universally optimal age, but for many Minnesota professionals, the window between early retirement (often ages 60-65) and age 73 — when RMDs begin — represents the best conversion opportunity. During these years, earned income has typically declined or stopped, Social Security may not have begun, and you have the most control over your taxable income. Minnesota taxes Roth conversions as ordinary income in the year of conversion, so the federal bracket you are converting into matters most. Converting in years when you fall in the 22% or 24% federal bracket is often more favorable than waiting until RMDs push you into the 32% bracket or above. The right age depends on your account balances, projected RMDs, other income sources, and estate planning goals. A personalized multi-year projection is essential before acting.
Does Minnesota tax Roth conversions?
Yes. Minnesota taxes Roth conversions as ordinary income in the year the conversion is executed, at the same rates that apply to traditional IRA and 401(k) distributions. For 2026, Minnesota income tax rates range from 5.35% to 9.85%. There is no special exclusion or reduced rate for conversion income in Minnesota. However, once the conversion is complete and the funds are inside a Roth IRA, future qualified distributions — including all growth — are tax-free at both the federal and Minnesota state levels. So the conversion represents a shift from future taxable income to a current tax payment, not an elimination of tax. Whether that shift is favorable depends on your expected tax rates over time.
How do RMDs affect my tax bracket in Minnesota?
RMDs are added to your gross income in the year they are taken and taxed as ordinary income at both federal and Minnesota state rates. For a retiree already receiving Social Security and perhaps pension income, a large RMD can push total income into a higher combined bracket — potentially 22% to 32% federal plus 7.85% or 9.85% Minnesota, for a combined marginal rate approaching or exceeding 40%. RMDs also increase your MAGI, which can cause more of your Social Security to become taxable (up to 85% of benefits at higher income levels) and can trigger or increase Medicare IRMAA surcharges. This stacking effect is precisely why reducing the pre-tax account balance through conversions before age 73 is a strategy worth analyzing for most executives and high-income professionals in Minnesota.
Can a Roth conversion satisfy an RMD requirement?
No. A Roth conversion cannot satisfy an RMD. Under IRS rules, you must take your full RMD before converting any portion of the same account in the same year. The RMD must come out first as a taxable distribution; only amounts above and beyond the RMD can be converted to a Roth. This is an important sequencing rule to understand if you plan to continue converting after age 73. In practice, it means the RMD itself always creates taxable income, and conversions represent additional income layered on top.
At what age do Roth conversions no longer make sense?
The analysis generally becomes less favorable as the time horizon shortens — both because there are fewer years for the converted assets to grow tax-free and because the breakeven period for recovering the upfront tax cost lengthens. For many retirees, conversions can still provide value into the 70s if the primary goal is estate planning (transferring tax-free assets to heirs) rather than personal retirement income. There is no fixed age at which conversions automatically stop making sense. It depends on your remaining life expectancy, your marginal tax rates, the size of your pre-tax accounts, your beneficiaries' anticipated tax brackets, and your overall estate plan. Coordination with a qualified advisor and, where applicable, a CPA is important before making conversion decisions in later retirement years.
Ready to Build Your Strategy?
Talk to a Minnesota Retirement Tax Strategist
RMD and Roth conversion planning involves dozens of interconnected decisions that change every year as tax law, account balances, and your life circumstances evolve. The first conversation with our team costs nothing and carries no obligation. We will listen to your situation, explain how we approach these questions, and help you understand what a strategy-first review might look like for you.
Serving professionals and executives in Lake Elmo, Stillwater, Woodbury, Arden Hills, Anoka County, and the greater Twin Cities metro area.
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About the Authors
Lars Engman, MBA
Lars brings an MBA background to retirement income and tax planning, working with executives and professionals across the Twin Cities metro to build strategy-first financial plans tailored to each client's goals. FINRA Series 7, 63, 65, 66 registered; Life and Health Insurance Licensed.
Alec Engman, B.S. Economics — University of Minnesota
Alec brings an economics foundation to financial planning, with a focus on the analytical rigor that informs distribution planning, tax strategy, and long-term wealth management. FINRA Series 7, 63, 65, 66 registered; Life and Health Insurance Licensed.
New Horizons Boutique Financial Services is registered as an investment adviser. Registration does not imply a certain level of skill or training. This content is educational and does not constitute personalized tax, legal, or investment advice.